Tuesday, October 16, 2007

Want to guarantee a recession -- or worse?

I wrote once before about a proposal floating around in Congress to tax carried interest as ordinary income rather than capital gains. I'm writing again because of an excellent op-ed counter to the USA Today editorial board's position in favor of this tax (Thanks to Traffic Court and The Real Estate Bloggers for pointing me to the pages.)

People who love taxes are calling this a "hedge fund tax" that will go after billionaires and not harm little guys like you and me. El-wrongo. As Jeffery DeBoer points out, "It would be the first time that the sweat equity of an entrepreneur who is building a business would be taxed as ordinary income....Enacting this proposal would be playing Russian roulette with an economy that appears weak in the knees."

If you want recession -- or even worse -- then let's enact this law. It will make sure that entrepreneurs pass on marginal deals or find other things to do. With tax costs doubled and the same as working for the man, why take the risk of, for instance, developing land when you can just take a paycheck and get taxed the same way? Of course, there may not be many jobs around if we pass this law. What a disaster in the making.